Budget proposal goes nowhere

GOP VOTES DOWN PLAN OVER INCREASED TAXES, LACK OF A SPENDING CAP

SACRAMENTO - The state Assembly on Sunday night rebuffed a Democratic budget plan that called for billions in tax increases and spending cuts, leaving California still without a spending plan seven weeks into its fiscal year.

Although the $105.2 billion budget blueprint garnered a majority vote, 45-30, it fell short of the two-thirds supermajority that California's constitution requires to pass a budget. The defeat sends Democrats and Republicans back to the negotiating table, still deeply divided over how to close a staggering $15.2 billion deficit.

The main sticking point is taxes. Democrats say they're vital to close the budget gap without decimating services. Republicans counter that raising taxes would further debilitate the state's struggling economy.

The vote "shows clearly that we're not going to vote for taxes," said Assembly Republican leader Mike Villines, R-Fresno.

Rejected after nearly four hours of bitter partisan debate, the Democratic budget plan included $6.6 billion in tax increases, mostly targeted at the wealthy. It would have boosted the state's income tax rate for families making more than $321,000 from 9 to 10 percent, and for those making over $642,000 from 10 to 11 percent.

The plan would have generated an additional $1.1 billion by suspending for three years companies' ability to apply past losses to their tax returns. Democrats also sought to increase the corporate income tax rate from 8.84 percent to 9.3 percent, raising $470 million.

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And their plan echoed Gov. Arnold Schwarzenegger's push, albeit in scaled-back form, to borrow billions of dollars against future lottery revenue. The proceeds, about $10 billion, would be used to pay down debt.

On the spending side, the proposal included cuts to health care, welfare and, to a lesser extent, education programs. But "it rejects the most draconian of cuts, that would literally take food out of the mouths of kids," said Assemblyman John Laird, D-Santa Cruz.

State spending would actually grow from last year under the Democratic plan. The cuts they described were from the amounts programs were set to receive after accounting for inflation and population growth.

"This is truly a compromise budget," said Assembly Speaker Karen Bass, D-Los Angeles, arguing that the enormity of the deficit demands new revenue. The alternative, Bass and other Democrats said, would be massive cuts to state services or borrowing that would saddle California in the future.

Republicans dismissed the notion that the budget plan represented a middle ground. They said that raising taxes during a recession would only prolong the current downturn. And they complained that Democrats ignored their plea for a spending cap. The proposal did call for an enhanced rainy day fund, but Republicans criticized it as weak.

"For this Legislature to raise taxes in this economic climate is not only foolish, it is outright irresponsible," said Assemblywoman Mimi Walters, R-Laguna Hills.

The state will be precluded from making billions in payments due at the end of the month if a budget isn't in place by then.

Lawmakers are up against other deadlines, too. If a budget isn't approved soon, the state will have to commit to incurring loans from Wall Street, which would come with premiums of hundreds of millions of dollars. A deadline to add measures to the November ballot is approaching in the next week or two. Several components of a likely budget compromise would have to go before voters.

Schwarzenegger's office has predicted a "total meltdown" in negotiations if the ballot deadline passes without a budget. But the governor has failed to persuade legislators to adopt his compromise plan, which includes a temporary one-cent sales tax increase.